Community Reinvestment Act - Sullivan & Cromwell LLP
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
September 4, 2018
Community Reinvestment Act
OCC Issues Advance Notice of Proposed Rulemaking to Improve the
Regulatory Framework Implementing the Community Reinvestment
Act
SUMMARY
On August 28, the Office of the Comptroller of the Currency published an advance notice of proposed
rulemaking (the “ANPR”) soliciting “ideas for building a new framework to transform or modernize the
1
regulations that implement the Community Reinvestment Act of 1977 [(“CRA”)].” The ANPR does not
propose specific revisions to the current CRA regulations, which were last materially revised in 1995, but
requests comment on a series of questions that appear designed to inform the OCC on the scope and
desirability of possible changes. The ANPR indicates that these changes could range from relatively
minor updates of the current CRA regime to a major overhaul in approach that could significantly affect
the actions of banks in lending, investing, and providing other banking services in low- and moderate-
income (“LMI”) geographies. The ANPR does not indicate why it was issued by the OCC alone,
notwithstanding a history of joint banking agency CRA rulemakings.
In a recent op-ed, Comptroller of the Currency Joseph Otting noted that, "[f]or years we have resisted
amending our approach to the CRA out of fear of what could happen, but we have reached a point where
we should be more afraid that [the] CRA will become increasingly ineffective if we fail to modernize our
2
approach to implementing this important statute.”
In the ANPR, the OCC expresses firm support for the CRA’s fundamental purpose—encouraging banks
to help meet the credit and deposit needs of the communities in which they operate, including LMI
3
communities —noting that a new CRA regulatory framework would help banks “more effectively serve
this purpose by (1) encouraging more lending, investment, and activity where it is needed most; (2)
evaluating CRA activities more consistently; and (3) providing greater clarity regarding CRA-qualifying
New York Washington, D.C. Los Angeles Palo Alto London Paris Frankfurt Brussels
Tokyo Hong Kong Beijing Melbourne Sydney
www.sullcrom.comactivities.” The OCC also notes that an updated framework would facilitate more timely evaluations of
bank CRA performance, offer greater transparency regarding ratings, promote a consistent interpretation
of the CRA, and encourage increased community and economic development in LMI areas.
The OCC notes that “although aspects of the current CRA regulatory framework may be sufficient for
4
certain locally focused and less complex banks[,]” “[c]hanges in the industry offer more opportunities for
banks to engage in business outside of the geographies surrounding physical branches” and
“technological advances in the delivery of banking services, shifting business models, and changes in
5
consumer behavior and preferences permit banks to engage in the business of banking,” whether or not
they have physical branches and regardless of the location of any physical branches.
The ANPR comes several months after the U.S. Department of the Treasury issued a memorandum to
the OCC, the Federal Reserve, and the FDIC setting forth Treasury’s findings and recommendations
6
resulting from its review of the CRA examination and ratings framework (the “Treasury Memorandum”).
In the ANPR, the OCC cites—as the basis for the potential changes contemplated by the ANPR—two
primary concerns that were highlighted in the Treasury Memorandum: (1) that the current CRA regulatory
framework no longer reflects how many banks and consumers engage in the business of banking, and (2)
that there is a lack of clarity, consistency, and certainty with respect to current CRA regulatory
requirements. The ideas and questions included in the ANPR focus primarily on addressing these two
concerns.
The thirty-one questions and accompanying commentary in the ANPR focus on establishing “metric-
based thresholds” for CRA ratings; making bank CRA performance evaluations more transparent;
revisiting how assessment areas are defined and used; clarifying and expanding the types of activities
eligible for CRA consideration; increasing lending and services to people and in areas that need it most,
including in LMI areas; improving the timeliness of regulatory decisions related to the CRA; and reducing
the cost and burden related to evaluating performance under the CRA. Key themes of the ANPR include:
Establishing metrics-based thresholds and making bank CRA performance evaluations
more transparent. The OCC suggests that metrics-based evaluations could be used to improve
the consistency and transparency of the evaluation process and solicits comment on how metrics
could either be incorporated into the existing CRA evaluation framework or serve as the
foundation of a transformed evaluation framework, “taking into account … bank business model,
asset size, delivery channels, and branch structure” as well as “consideration for qualifying
7
activities that serve areas outside a bank’s delineated assessment areas.” One approach
suggested by the OCC is a “metric-based performance measurement system” with thresholds or
ranges (benchmarks) that correspond to the four statutory CRA rating categories composed of
8
the “micro” components of CRA-qualifying lending, investment and services. Under this
framework, a bank’s scores in each category (representing the dollar value of CRA-qualified
activity compared to objective criteria, such as percentage of domestic assets or balance sheet
capital) would be aggregated to determine the bank’s overall benchmark or level of CRA
9
performance. This approach, the OCC suggests, could allow “flexibility to accommodate
capacity and business models while facilitating the comparison among banks of all sizes and
10
business models and the evaluation against an objective, transparent threshold.” The OCC
11
invites comments on the structure and viability of such a metrics-based approach, as well as on
-2-
Community Reinvestment Act
September 4, 2018the data collection, reporting and record keeping requirements that such an approach would
12
entail.
Defining and using assessment areas in ways that recognize the evolution of banking
practices. The OCC solicits comment on potential modifications to the definition and
interpretation of a bank’s “community” (a term that is not defined in the CRA or the CRA
regulations) and other, related changes to “assessment areas” used in evaluating a bank’s CRA
13
performance. The OCC suggests that a revised assessment area need not necessarily be
limited to the geographic areas surrounding the bank’s branch, deposit-taking, and ATM footprint,
but could also include activities in other underserved areas, such as areas tied to the bank’s
14
business operations. The OCC notes that providing for consideration for activities conducted in
areas “that have historically been largely excluded from consideration” may “accommodate banks
that either operate with business models that have no physical branches or banks with services
that reach far beyond the geographic location of their physical branches,” including, for example,
15
activities targeting underserved areas “such as remote rural populations or Indian country.”
Clarifying and broadening the range of activities supporting community and economic
development that would qualify for CRA consideration. Citing stakeholders’ expressed
desire for more clarity and certainty regarding the types of activities that will receive CRA
consideration, the OCC seeks stakeholder feedback on “regulatory changes that could ensure
CRA consideration for a broad range of activities supporting community and economic
development … while retaining a focus on LMI populations and areas,” and on changes that
16
could clarify standards for determining whether an activity qualifies for CRA consideration.
Specifically, the OCC solicits comment on the extent to which small business loans should
receive CRA consideration, whether there should be specific standards for or limits on the
inclusion of Community Development activities in CRA considerations, and whether and under
what circumstances specific categories of activities (for example home mortgage, small farm
17
lending and consumer lending) should be considered as CRA-qualifying activities.
OBSERVATIONS AND IMPLICATIONS
The ANPR suggests that the OCC may be willing to propose revised regulations that could substantially
modify the actions that banks take to provide lending, investment and other services in their communities
to meet CRA expectations. Any resulting proposed regulations will presumably better target the
availability of bank products and services to areas and populations that are currently underserved and
also ease compliance burdens.
Although the ANPR was issued by the OCC alone, it is possible that the Federal Reserve and the FDIC
could join the OCC at the Notice of Proposed Rulemaking (“NPR”) stage. Last week, responding to
questions after her presentation of the FDIC’s Quarterly Banking Profile, FDIC Chairman Jelena
McWilliams, when asked about reports that the OCC was preparing to issue its own ANPR on CRA
reform, said, “there are many opportunities for the agencies to work together” and noted that the
publication of an ANPR that is “issued by a single agency . . . does not mean the other agencies will not
join in at the NPR stage.”
* * *
Copyright © Sullivan & Cromwell LLP 2018
-3-
Community Reinvestment Act
September 4, 2018ENDNOTES
1
Office of the Comptroller of the Currency, Reforming the Community Reinvestment Act
Regulatory Framework, available at https://www.occ.gov/news-issuances/news-releases/2018/nr-
occ-2018-87a.pdf (Aug. 28, 2018).
2
Joseph Otting, “We have a once-in-a-generation chance to revamp CRA. Let’s use it.” American
Banker (Aug. 30, 2018), available at https://www.americanbanker.com/opinion/we-have-a-once-
in-a-generation-chance-to-revamp-cra-lets-use-it.
3
Id. at 4.
4
Id. at 8.
5
Id. at 13.
6
U.S. Department of the Treasury, Memorandum for the Office of the Comptroller of the Currency,
the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation (Apr. 3, 2018), available at https://home.treasury.gov/sites/default/files/2018-04/4-3-
18%20CRA%20memo.pdf. Detailed discussion of the findings and recommendations in the
Treasury Memorandum can be found in our previous memorandum to clients entitled “Community
Reinvestment Act: Treasury Releases CRA Reform Recommendations Focused on Assessment
Areas, Examination Clarity and Flexibility, Examination Processes, and CRA Performance” (Apr.
10, 2018), available at https://www.sullcrom.com/siteFiles/Publications/
SC_Publication_Community_Reinvestment_Act.pdf.
7
ANPR at 14-15.
8
Id. at 15.
9
Id.
10
Id.
11
Id. at 15-16.
12
Id. at 23.
13
Id at 17.
14
Id.
15
Id.
16
Id. at 19-20.
17
Id. at 20-21.
-4-
Community Reinvestment Act
September 4, 2018ABOUT SULLIVAN & CROMWELL LLP
Sullivan & Cromwell LLP is a global law firm that advises on major domestic and cross-border M&A,
finance, corporate and real estate transactions, significant litigation and corporate investigations, and
complex restructuring, regulatory, tax and estate planning matters. Founded in 1879, Sullivan &
Cromwell LLP has more than 875 lawyers on four continents, with four offices in the United States,
including its headquarters in New York, four offices in Europe, two in Australia and three in Asia.
CONTACTING SULLIVAN & CROMWELL LLP
This publication is provided by Sullivan & Cromwell LLP as a service to clients and colleagues. The
information contained in this publication should not be construed as legal advice. Questions regarding
the matters discussed in this publication may be directed to any of our lawyers listed below, or to any
other Sullivan & Cromwell LLP lawyer with whom you have consulted in the past on similar matters. If
you have not received this publication directly from us, you may obtain a copy of any past or future
publications by sending an e-mail to SCPublications@sullcrom.com.
CONTACTS
New York
Thomas C. Baxter Jr. +1-212-558-4324 baxtert@sullcrom.com
Whitney A. Chatterjee +1-212-558-4883 chatterjeew@sullcrom.com
H. Rodgin Cohen +1-212-558-3534 cohenhr@sullcrom.com
Elizabeth T. Davy +1-212-558-7257 davye@sullcrom.com
Mitchell S. Eitel +1-212-558-4960 eitelm@sullcrom.com
Michael T. Escue +1-212-558-3721 escuem@sullcrom.com
Jared M. Fishman +1-212-558-1689 fishmanj@sullcrom.com
C. Andrew Gerlach +1-212-558-4789 gerlacha@sullcrom.com
Wendy M. Goldberg +1-212-558-7915 goldbergw@sullcrom.com
Charles C. Gray +1-212-558-4410 grayc@sullcrom.com
Mark J. Menting +1-212-558-4859 mentingm@sullcrom.com
Camille L. Orme +1-212-558-3373 ormec@sullcrom.com
Richard A. Pollack +1-212-558-3497 pollackr@sullcrom.com
Stephen M. Salley +1-212-558-4998 salleys@sullcrom.com
Rebecca J. Simmons +1-212-558-3175 simmonsr@sullcrom.com
William D. Torchiana +1-212-558-4056 torchianaw@sullcrom.com
Donald J. Toumey +1-212-558-4077 toumeyd@sullcrom.com
Marc Trevino +1-212-558-4239 trevinom@sullcrom.com
Benjamin H. Weiner +1-212-558-7861 weinerb@sullcrom.com
Mark J. Welshimer +1-212-558-3669 welshimerm@sullcrom.com
Michael M. Wiseman +1-212-558-3846 wisemanm@sullcrom.com
-5-
Community Reinvestment Act
September 4, 2018Washington, D.C.
Kathryn E. Collard +1-202-956-7615 collardk@sullcrom.com
Sarah C. Flowers +1-202-956-7630 flowerss@sullcrom.com
Eric J. Kadel, Jr. +1-202-956-7640 kadelej@sullcrom.com
Stephen H. Meyer +1-202-956-7605 meyerst@sullcrom.com
Jennifer L. Sutton +1-202-956-7060 suttonj@sullcrom.com
Andrea R. Tokheim +1-202-956-7015 tokheima@sullcrom.com
Samuel R. Woodall III +1-202-956-7584 woodalls@sullcrom.com
Los Angeles
Patrick S. Brown +1-310-712-6603 brownp@sullcrom.com
London
Richard A. Pollack +44-20-7959-8404 pollackr@sullcrom.com
Paris
William D. Torchiana +33-1-7304-5890 torchianaw@sullcrom.com
Melbourne
Robert Chu +61-3-9635-1506 chur@sullcrom.com
Tokyo
Keiji Hatano +81-3-3213-6171 hatanok@sullcrom.com
-6-
Community Reinvestment Act
September 4, 2018
DC_LAN01:366622.2You can also read
